- (1.) WE have heard counsel for the parties, and also considered the judgment of the High Court, dated 25th March, 1988, which is challengd in this appeal. It appears that between 1st January, 1960 and 31st December, 1962, the respondent-firm had deposited sales tax on the hire-purchase transactions made by it as a dealer in trucks, cars, etc., on the basis that the sale was completed when the agreement was entered into. Thereafter, this Court delivered judgment in K. L. Johar and Co. v. Deputy Commercial Tax Officer [1965] 16 STC 213, wherein it was found that the State Legislature when it proceeds to legislate either under entry 48 of List II of the Seventh Schedule to the Government of India Act, 1935, or under entry 54 of List II of the Seventh Schedule to Constitution, can only tax "sale" within the meaning of that word as defined in the India Sale of Goods Act, 1930.
(2.) IT was further held that hire-purchase agreements are not conditional sales; and that a hire-purchase agreement has two elements : (1) element of bailment, and (2) element of sale, in the sense that it contemplates an eventual sale. It was also held that the element of sale fructifies when the option is exercised by the intending purchaser after fulfilling the terms of the agreement. The taxable event under the Madras General Sales Tax Act (9 of 1939), was the sale of goods and until that taxable event took place, there could be no liability to pay tax. Hence, it was held that though eventually most cases of hire-purchase may result in sales by the exercise of the opinion and the fulfilment of the terms of the agreement, tax was not exigible at the time when the hire-purchase agreement was made, as at that time the taxable event had not taken place; it could only be exigible when the option had been exercised and all the terms of the agreement fulfilled and the sale actually took place.
(3.) THEREAFTER , in the instant case, the respondent asked for refund of sales tax paid on the ground that the sale was completed only when the last instalment stood paid and the option to purchase, thus finally exercised by the purchaser. At this, on 25th February, 1970, the Sales Tax Officer issued notices to the respondent under section 37 of the Bombay Sales Tax Act, 1959 ("the Act"), as amended in the State of Gujarat, alleging that the respondent had collected certain amounts by way of sales tax in violation of section 46 of the Act during the years 1960, 1961 and 1962, requiring the respondent to show cause as to why the said amounts should not be forfeited and penalty imposed.;